Correlation Between Boston Beer and Innovation Beverage

Can any of the company-specific risk be diversified away by investing in both Boston Beer and Innovation Beverage at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Boston Beer and Innovation Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Boston Beer and Innovation Beverage Group, you can compare the effects of market volatilities on Boston Beer and Innovation Beverage and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Boston Beer with a short position of Innovation Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boston Beer and Innovation Beverage.

Diversification Opportunities for Boston Beer and Innovation Beverage

-0.38

Correlation Coefficient

Boston Beer  Innovation Beverage

Very good diversification

The 3 months correlation between Boston and Innovation is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Boston Beer and Innovation Beverage Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovation Beverage and Boston Beer is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Boston Beer are associated (or correlated) with Innovation Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovation Beverage has no effect on the direction of Boston Beer i.e., Boston Beer and Innovation Beverage go up and down completely randomly.

Pair Corralation between Boston Beer and Innovation Beverage

Considering the 90-day investment horizon Boston Beer is expected to generate 0.13 times more return on investment than Innovation Beverage. However, Boston Beer is 7.49 times less risky than Innovation Beverage. It trades about 0.05 of its potential returns per unit of risk. Innovation Beverage Group is currently generating about -0.03 per unit of risk. If you would invest  28,914  in Boston Beer on September 30, 2024 and sell it today you would earn a total of  1,197  from holding Boston Beer or generate 4.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Boston Beer  vs.  Innovation Beverage Group

Boston Beer

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Beer are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Boston Beer is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Innovation Beverage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innovation Beverage Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Boston Beer and Innovation Beverage

The main advantage of trading using opposite Boston Beer and Innovation Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boston Beer position performs unexpectedly, Innovation Beverage can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Innovation Beverage will offset losses from the drop in Innovation Beverage's long position.

The idea behind Boston Beer and Innovation Beverage Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.